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BALL v. A.O. SMITH CORPORATION

February 3, 2005.

JAMES JAY BALL, Appellant,
v.
A.O. SMITH CORPORATION, Appellee.



The opinion of the court was delivered by: LAWRENCE KAHN, District Judge

MEMORANDUM-DECISION AND ORDER*fn1

I. BACKGROUND

Presently before the Court is an appeal by Debtor James J. Ball ("Debtor"). Debtor, a licensed attorney, appeals from several rulings of the Bankruptcy Court for the Northern District of New York in an action brought by Plaintiff A.O. Smith Corporation ("AOS"). Specifically, he asks this Court to reverse the rulings of the bankruptcy court and now order that (1) Debtor is discharged from paying an award of attorney's fees that was granted by the U.S. District Court in Louisiana because the district court did not conclude that Debtor acted willfully or maliciously as is required under 11 U.S.C. § 523(a)(6); (2) the admission of unauthenticated copies of the transcripts from proceedings in the District Court of Louisiana violated the Federal Rules of Evidence, and therefore they should have been excluded from evidence at the bankruptcy trial; (3) AOS should be held in contempt of court because it violated the automatic stay by filing (a) in the Eastern District of New York, a motion for costs stemming from a scheduled deposition of Debtor and (b) in North Carolina Page 2 state court, a motion to have Debtor's pro hoc vice status revoked in that jurisdiction;*fn2 (4) it was mandatory for AOS's counsel to withdraw from representation of AOS, pursuant to Disciplinary Rule 2-110(b)(2), because they violated Disciplinary Rule 5-102 by appearing as both a witness and legal advocate for their client; and (5) pursuant to Local Bankruptcy Rule 9022.1, the orders of the bankruptcy court are vacated because they were never served on Debtor.

  II. DISCUSSION

  (a) Standard of Review

  In reviewing the rulings of a bankruptcy court, a district court applies the clearly erroneous standard to a bankruptcy court's conclusions of fact, and de novo review to conclusions of law. Yarinsky v. Saratoga Springs Plastic Surgery, 310 B.R. 493, 498 (N.D.N.Y. 2004) (Hurd, J.) (citing to In re Manville Forest Prods. Corp., 209 F.3d 125, 128 (2d Cir. 2000); In re Petition of Bd. of Dirs of Hopewell Int'l Inst. Ltd., 275 B.R. 699, 703 (Bankr. S.D.N.Y. 2002); Fed.R. Bankr. P. 8013). Mixed questions of law and fact are reviewed de novo. Ernst & Young v. Bankr. Servs. (In re CBI Holding Co.), 311 B.R. 350 (S.D.N.Y. 2004) (citing to In re Vebeliunas, 332 F.3d 85, 90 (2d Cir. 2003); In re AroChem Corp., 176 F.3d 610, 620 (2d Cir. 1999)). Under Rule 8013 of the Federal Bankruptcy Rules, on appeal, "the district court . . . may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings."

  (b) Dischargeability of Attorneys Fees Awarded

  (i) Background

  The award of attorney's fees that Debtor now seeks to have discharged was ordered by Judge Page 3 Tucker L. Melancon in Gatreau v. AOS, No. 98-CV-1187 (W.D. La. 2001). In that proceeding, Debtor, a licensed attorney, represented a plaintiff who alleged fraud surrounding his purchase of a used silo manufactured by AOS. With respect to the merits of the action, the district court granted AOS's motion for summary judgment and dismissed plaintiff's action with prejudice because it was time barred. W.D. La. Tr. (Dkt. No. 1, Appellant Ex. 6)*fn3 at 4-5. AOS then moved for sanctions against Debtor pursuant to Rule 11, alleging that the frivolous lawsuit was initiated only to harass and cause unnecessary litigation expense. Id. at 6-7. AOS also sought sanctions pursuant to 28 U.S.C. § 1927 which were to be granted, in accordance with Fifth Circuit precedent, only if the factual and legal arguments are "unwarranted." Id. at 9-10.

  After holding several days of hearings, Judge Melancon issued his oral decision on January 31, 2001 that Debtor was to be sanctioned because he filed the suit against AOS even though "[t]here was not a colorable claim when the lawsuit was filed." Id. at 10. Judge Melancon explained that "the prescription issue as to the state law claim . . . and the statute of limitations issue as to the RICO claim were so obviously abar [sic] that under the circumstances it was unreasonable to bring the suit in the first place [for] a reasonably competent attorney, which [Debtor] should be. . . ." Id. at 11. The Fifth Circuit affirmed the imposition of sanctions holding that "the district court gave sufficient reasons for the sanctions award, including the type and amount of sanctions." Gautreau v. A.O.Smith Corp., No. 01-30336, slip op. at 2 (5th Cir. March 27, 2002).*fn4 Page 4

  Once Debtor filed for Chapter 7 bankruptcy, the parties disputed whether the debt arising from the imposition of sanctions should be discharged. The bankruptcy court held that it is non-dischargeable pursuant to § 523(a)(6) which states that "a discharge under [Chapter 7] . . . does not discharge an individual debtor from any debt . . . for willful and malicious injury by the debtor to another entity. . . ." 11 U.S.C. § 523(a)(6); In re Ball, No. 02-60810 (Bankr. N.D.N.Y. Feb. 10, 2004).*fn5 Debtor contends that the bankruptcy court erred when it invoked this exception and held that the sanctions would not be discharged. Debtor explains that the sanctions were imposed because Judge Melancon concluded only that Debtor's conduct was "unreasonable." Debtor claims that because Judge Melancon did not hold that Debtor's conduct was "willful and malicious," the debt is dischargeable and the exception to discharge for debt's incurred willfully or maliciously, as set forth in § 523(a)(6), is not applicable.

  (ii) Standard of Review

  Whether the factual findings satisfy the statutory requirements of non-dischargeability pursuant to § 523(a)(6) is properly characterized as a mixed question of law and fact which the court reviews de novo. See Golant v. Care Comm, Inc., 216 B.R. 248, 252 (N.D. Ill. 1997).

  (iii) Willful Nature of Debtor's Actions

  Based on the record before the Court, the bankruptcy court properly ruled that the award of attorney's fees was not to be discharged pursuant to the exception in § 523(a)(6). Collateral estoppel prevents Debtor from relitigating Judge Melancon's decision to impose sanctions. See Grogan v. Garner, 498 U.S. 279, 284 n. 11 (1991) (stating that "collateral estoppel principles do Page 5 indeed apply in discharge exception proceedings pursuant to section 523(a)"). Under principles of collateral estoppel, therefore, this Court is bound by the district court's "factual finding . . . that the filing of the lawsuit initially was unwarranted and should never have been commenced, had a reasonable investigation been made by Mr. Ball. . . ." W.D. La. Tr. (Dkt. No. 1, Appellant Ex. 6) at 16.

  Judge Melancon explained that Debtor's actions were "a clear violation under Rule 11." Id. at 13. Moreover, Debtor's actions in the course of representing plaintiff were so egregious that even though the Fifth Circuit "sparingly applie[s]" the imposition of sanctions under 28 U.S.C. § 1927, Judge Melancon thought such an award was appropriate because "the proceedings were unwarranted and should never have been commenced. . . ." Id. at 13. Although it did not rely on it, the district court also explained that it "has the authority under its inherent power to sanction [Debtor]." Id. at 14. Therefore, pursuant to Rule 11 and § 1927, the district court "shift[ed] . . . the entire financial burden of the action . . . from the defendant [AOS] to the plaintiff [Debtor]." Id. at 13.

  The question before this Court is whether Debtor's actions in Louisiana district court were willful and malicious, such that the attorney's fees debt should not be discharged under the exception of § 523(a)(6). All attorneys must act reasonably when operating within the confines of our judicial system, and the statements of Judge Melancon certainly demonstrate that the Debtor did not. While Judge Melancon did not state on the record that Debtor's actions were "willful and malicious," that is inherent based on the imposition of sanctions under Rule 11 and § 1927. Under Fifth Circuit precedent, sanctions under § 1927 that are imposed for an "`unreasonable' and `vexatious' multiplicative proceeding[,] necessitates `evidence of bad faith, improper motive, or reckless disregard of the duty owed to the court.'" Mercury Air Group, Inc. v. Mansour, Page 6 237 F.2d 542, 549 (5th Cir. 2001) (quoting Edwards v. General Motors Corp., 153 F.3d 242, 246 (5th Cir. 1998)); see also, State St. Bank & Trust Co. v. Inversiones Errazuriz Limitada, 374 F.3d 158, 180 (2d Cir. 2004) ("Section 1927 authorizes the imposition of sanctions only when there is a finding of conduct constituting or akin to bad faith.") (internal quotations and citations omitted); Morelli v. Service Am. Dining Servs., 1998 U.S. Dist. LEXIS 5058, at *5 (N.D.N.Y. Apr. 3, 1998) (Scullin, J.) ("`The term `willful,' as expressed in 523(a)(6), is synonymous with intentional. . . . The statute requires not only intentional conduct on the part of the debtor, but also intentional or deliberate injury.'") (internal quotations and citations omitted). Debtor even admitted that his conduct was found by Judge Melancon to be "intentional conduct that was in bad faith." July 17, 2003 Bank. Tr. (Dkt. No. 1, Appellant Ex. 5)*fn6 at 34. Therefore, based upon the statements of Judge Melancon and the assessment of fees under § 1927, Debtor's conduct is properly characterized as "willful and malicious." Although the district court did not use the terminology found in § 523(a)(6), namely that his conduct be "willful and malicious," it is clear from the record that his actions rise to that level. The bankruptcy court correctly held that this debt fits within the exception of § 523(a)(6) and should therefore not be discharged.

  (c) Admission of an Unauthenticated Transcript

  In support of its claim that the award of attorney's fees was not dischargeable pursuant to § 523(a)(6), the only evidence offered by AOS in the bankruptcy court's adversary proceeding were Page 7 duplicates of the transcripts from the Western District of Louisiana proceedings.*fn7 Debtor next contends that, even if, as discussed above, the debt should not be discharged based upon the application of § 523(a)(6) to the facts of the debt at issue, the bankruptcy court's holding should be overturned because relying on the transcripts violated the Federal Rules of Evidence. Therefore, as that transcript should have been excluded and it offered no other evidence in support of its claim, AOS did not meet its burden to show that the debt was not dischargeable pursuant to § 523(a)(6). See Morelli, 1998 U.S. Dist. LEXIS 5058, at *5 (noting that the party challenging the dischargeability of a debt carries the burden of proving the same).

  In sum, Debtor's objection is that the transcripts that were admitted were not originals. Rather, the bankruptcy court admitted duplicates of the transcripts from the Louisiana proceedings because AOS did not bring the originals to the bankruptcy trial. See July 17, 2003 Bankr. Tr. (Dkt. No. 1, Appellant Ex. 5) at 8-19. The duplicates included the attached court reporters' signed certification. Id. at 16-17. At trial, Debtor contended that, as the transcripts were not originals, they must be authenticated by a witness or otherwise excluded. Nonetheless, the bankruptcy court admitted the transcripts because, as certified copies of public records, they are self-authenticating under Federal Rule of Evidence 901(4), and a duplicate of such a record is admissible to the same extent as an original under Federal Rule of Evidence 1003.

  This Court reviews the bankruptcy court's evidentiary ruling for an abuse of discretion. See, e.g., Manley v. AmBase, Corp., 337 F.3d 237, 247 (2d Cir. 2003) (citations omitted). Even if a bankruptcy court did abuse its discretion in admitting evidence, the decision is reversible only if it Page 8 also affects a party's substantial rights. Daly v. Richardson, 2004 U.S. Dist. LEXIS 19635, at *7 (D. Conn. Sept. 28, 2004) (citing to Schering Corp. v. Pfizer, Inc., 189 F.3d 218, 224 (2d Cir. 1999)).

  In the present case, the bankruptcy judge did not abuse his discretion. He properly ruled that a court transcript is self-authenticating under Rule 902(4), which states that "[e]xtrinsic evidence of authenticity as a condition precedent to admissibility is not required with respect to . . . [a] copy of an official record or report . . ., or of a document authorized by law to be recorded or filed and actually recorded or filed in a public office, . . . certified as correct by the custodian or other person authorized to make the certification. . . ." The trial transcripts, which contain the court reporters' certifications, are therefore admissible as prima facie evidence of what was said therein. See United States v. Lumuba, 794 F.2d 806, 815 (2d Cir. 1986). Therefore, the Western District of Louisiana transcripts, in original form, are admissible even without an authenticating witness.

  Moreover, because these original transcripts are admissible, duplicates would be admissible under Rule 1003. See United States v. Grimmer, 1999 WL 1012571, at *2 (2d Cir. Oct. 14, 1999) (unpublished). Rule 1003 does list two exceptions, that the duplicate is not admissible if "(1) a genuine question is raised as to the authenticity of the original or (2) in ...


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